Legg Mason's AUM drops in quarter, inches up in 2012

Legg Mason

Legg Mason (LM) on Friday said its assets under management totaled $648.9 billion as of Dec. 31, a 0.2% decline from the previous quarter but up 3% from the end of 2011.

Legg Mason also reported a net loss $453.9 million in the latest quarter, compared with net income of $80.8 million in the previous quarter and net income of $28.1 million in the last quarter of 2011, according to an earnings statement.

“We are disappointed with our results this quarter, which were negatively impacted by the significant non-cash impairment charges that we previously announced,” Joseph Sullivan, interim CEO, said in the statement.

In an earnings call on Feb. 1, Peter Nachtwey, Legg Mason's senior executive vice president and chief financial officer, said long-term flows deteriorated in the last quarter, particularly in fixed income and driven by three redemptions at affiliate Western Asset Management Co.: $2.4 billion from a large state pension client he did not identify, $1.1 billion from the wind-down of its participation in the U.S. Treasury's Public-Private Investment Program through the RLJ Western Asset Public/Private Master Fund and $1.6 billion in ongoing redemptions related to low-fee global sovereign mandates.

Net outflows for the quarter totaled $7.5 billion, with outflows of $8.3 billion from equity and $6.8 billion from fixed income, and liquidity inflows of $7.6 billion. In the previous quarter, Legg Mason reported $200 million in net inflows — which had reversed six years of net outflows at the firm.

Assets were positively affected by market appreciation of $5.7 billion in the latest quarter, compared to $20.7 billion three months earlier.

Revenues in the latest quarter were $673.9 million, up 5% from Sept. 30 and 7% above the last quarter of 2011. The quarterly rise was primarily attributed to higher performance fees largely driven by Western Asset Management and the PPIP wind-down. The Treasury received a 23.9% internal rate of return on its equity investment, net of fees and expenses, since the fund's inception in November 2009.

During the latest quarter, Mark Fetting resigned as chairman and CEO; Legg Mason acquired hedge funds-of-funds manager Fauchier Partners from BNP Paribas Investment Partners and combined it with subsidiary Permal Group; and subsidiaries ClearBridge Investments and Legg Mason Capital Management businesses were combined under the ClearBridge brand.

“ Legg Mason delivered solid core earnings and, importantly, made good progress on a number of strategic fronts, including announcing the strategic acquisition of Fauchier Partners, which better positions us for growth,” Mr. Sullivan said in the statement. “As I outlined last quarter, we are committed to advancing our business strategy while the board continues the CEO search process.”

In an earnings call with analysts on Friday, Mr. Sullivan said that search is “nearing completion.”

Also in its earnings statement, Legg Mason said affiliates ClearBridge and Western Asset were named to the 2012 Pensions & Investments “Best Places to Work in Money Management” list.